Gazprom set to build global strategic alliance with Shell

A Gazprom logo is displayed above its headquarters in Moscow. Gazprom is building a global strategic alliance with energy major Royal Dutch Shell that will include asset swaps and allow the Russian gas giant to penetrate new markets.

The deal with Shell is a coup for Gazprom at a time when many Western companies are reducing their exposure to Russia because of Western sanctions over Moscow’s actions in Ukraine.

Reuters/St Petersburg, Russia

Gazprom is building a global strategic alliance with energy major Royal Dutch Shell that will include asset swaps and allow the Russian gas giant to penetrate new markets, its chief executive told Reuters.

Gazprom, the world’s top gas producer, said on Thursday that Shell and its long-time gas buyers in Europe – Germany’s E.ON and Austria’s OMV – had agreed to build two new Nord Stream gas pipelines under the Baltic sea to Germany.

In a rare interview, chief executive Alexei Miller said the agreement with Shell also foresaw an expansion of the firms’ joint $20bn liquefied natural gas plant on the eastern island of Sakhalin as well as global upstream asset swaps.

“Documents of such significance are signed only once every five years or maybe even 10,” Miller said on the sidelines of Russia’s top forum for investors in Saint Petersburg.

The deal with Shell is a coup for Gazprom at a time when many Western companies are reducing their exposure to Russia because of Western sanctions over Moscow’s actions in Ukraine.

Gazprom, which is under US but not EU sanctions, is fighting for market share in Europe in the face of increasingly oversupplied gas markets, and is locked in a long-running dispute over payments to Europe with conflict-stricken Ukraine.

“Many of our traditional partners are positioning themselves as strong regional players… Shell is a global player. And as the global gas markets develop… we will be creating a global strategic partnership,” said Miller.

Shell agreed to buy smaller rival BG for $70bn plus debt earlier this year and Miller said the deal was adding extra potential to cooperation, such as upstream asset swaps between Gazprom and the Anglo-Dutch giant.

“The deal will take some time to materialise. Shell for instance needs to become the full owner of BG,” he said. “We plan that next year we could sign such a deal in St Petersburg at the same forum.”

Shell needs to win anti-monopoly clearance for the BG purchase from authorities in Brazil, Australia and China where it already has a very significant presence.

“We know about Brazil, Australia and about the Asian market. And that allows us to talk about a global partnership,” Miller said.

Asked how he persuaded Shell to boost cooperation at a time many Western companies were curbing exposure to Russia, Miller said business was winning over politics.

“As far as Nord Stream is concerned – there was no politics at all. The decision was taken in November 2011 and all the work has been done based on the decisions taken 3 years ago,” he said.

Cooperation with Shell would not be limited to asset swaps or swaps of Gazprom’s pipeline gas in Europe for Shell’s LNG and could include oil products and other fuels, he said.

Gazprom and Shell also agreed on Thursday to expand the Sakhalin LNG plant, Russia’s sole LNG plant, by adding a third LNG train to the plant, which currently produces 10mn tonnes.

The third train was the expansion plan most favoured by Shell, which has a minority stake in the project.

In Europe, Miller said two new Nord Stream pipelines under the Baltic to be built with Shell, E.ON and OMV would transport an extra 55bn cubic meters of gas, or more than a tenth of Europe’s gas demand by the end of 2019.

Gas will travel far beyond Germany, he said, as OMV aims to turn Austria into one of Europe’s largest gas hubs.

The project will cost no more than €9.9bn ($11.2bn) and maybe less due to cost savings, compared with €8.5bn spent on the two existing lines.

The project will be financed in the same way as the first two lines, with 30% coming from shareholders and 70% from bank loans.

“Our level of readiness is very high,” Miller said.

Preparatory work on such large projects usually takes years but Miller said a great deal of work had been already done, including project and route design, selection of many contractors and pipe supplies.

The 1,225 km pipeline would start near the Russian port of Ust Luga near St Petersburg and enter German territory not far from the current entry point of Nord Stream 1 and 2.

Miller said Wintershall will likely join the project to build the two new pipelines under the Baltic and said the project was designed to deliver new gas to Europe, rather than replace the Turkish Stream project to build a new pipeline in Europe’s south.

“This is not a competitor of Turk Stream in any way.”

Gazprom wants to bypass Ukraine, its key gas export route to Europe, and plans to build the Turkish Stream pipeline under the Black Sea to ensure smooth transit of Russian gas when the transit contract with Kiev expires in 2019.

Gazprom is currently allowed only limited access to the Nord Stream pipeline under a European Union law which seeks to prevent energy suppliers from dominating infrastructure.

But Miller said over time Europe’s gas demand was poised to rise and new pipelines from Russia would be needed.

“We met our partners in Europe and they are signalling to us that supplies from traditional European gas production sources is falling, and falling substantially. Without new volumes of Russian gas they simply cannot cope,” Miller said.

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Bonus Group: More news of BG diaspora.
At the Annual General Meeting of Hurricane Energy plc held on 3rd of June, Ms Beverley Smith was elected as a Director of the Company with 99.85% of the votes in favour, 0.15% votes against.
Having previous experience as a VP and overseeing a hasty retreat from Algeria at the now defunct BG Group, will doubtless be valuable when exploring rock bottom and/or fractured basement on the Atlantic Margin!

Bogus Group: Would this be the same managers and geologists that made the competent business development and exploration decision to develop the Knarr Field? A venture that failed to meet its potential, both in terms of daily production and field life. In fact, I recall the UK based BG Group General Manager for Europe was a geologist.

Bonus Group: Useless degree????.
'Also it is not possible to be a competent geologist in the oil and gas business without having a very good background education in both sedimentation and stratigraphy. Both topics go hand in hand. Furthermore, managers at both the middle level and senior level need to be well versed in this subject area in order to make competent business development and exploration decisions.'
These would be the same 'job for life', middle to senior level managers and competent geologists who at BG Group, for example, assured work at a cost of £200MM which later cost the company £2Bn because it was wrong (according to the Chief Operating Officer at the time), and also spent more than five years working in an asset following corrupt workflows?
From your post on this Blog, I see that your time at a 'reputable university' was well spent in learning how to be exuberant with punctuation.
That is all I have to say on the topic. Cheers!

Useless degree????: I was reading your blog today and saw a reference to 'sedimentology' being a 'useless degree'. I do not believe any reputable university offers such a degree. Sedimentology is a sub-discipline within the field of geology. Reputable universities do offer degrees in geology. It is possible to specialize in sedimentology I suppose, but you need to be enrolled in a geology program to do so. I know, I am a geologist, among other things.

Also it is not possible to be a competent geologist in the oil and gas business without having a very good background education in both sedimentation and stratigraphy. Both topics go hand in hand.

Furthermore, managers at both the middle level and senior level need to be well versed in this subject area in order to make competent business development and exploration decisions.

That is all I have to say on the topic. Cheers.

Bonus Group: USA USA USA Hardly surprising is it. The company is overrun by sycophantic, grossly over paid, sniggering middle managers with numerous degrees in sedimentology, or some subject as equally useless, with little to no technical ability or technical background, who are dependent upon technical staff who likewise have little, to no, practical experience and who have only ever seen a rig laid up in the Firth of Forth in photographs, or when they went for a jolly with their wives for an outing one day. They spend their time documenting 'Lessons Learned' on fancy spreadsheets which are then filed in some obtuse filing system and they never learn the damn lessons!

USA USA USA: Missed opportunities is not as bad as the botched opportunities. RDS has always claimed that there is limited capital and resources to exploit every opportunity. We all agree. But the fact that so many recent projects have failed to deliver production promises, that is more clearly a lack of management and leadership. Prelude? Penn Chem? Olympus? and the many others that have not delivered on schedule, cost or production. Then there are the projects that move forward with little to no assurance of these vital front end loading to verify that the promise is realistic. It is just more of the same - Bloat / Cut / Reorg and repeat...